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					Patterns of ADR Use in Corporate Disputes
by: David B. Lipsky and Ronald L. Seeber

The following article is an excerpt from "The Appropriate Resolution of
Corporate Dispute: A Report on the Growing Use of ADR by U.S.
Corporations," a survey published in 1998 by the Cornell/PERC Institute on
Conflict Resolution

Alternative dispute resolution means different things to different people, and the
term is often used so broadly as to be meaningless. In our attempt to gauge the
extent of ADR use, it was therefore critical that all survey respondents use a
common definition. After considering many options, we chose to define ADR as
"the use of any form of mediation or arbitration as a substitute for the public
judicial or administrative process available to resolve a dispute."

We asked respondents a range of questions designed to gauge the extent of ADR
use. Specifically, we wanted to know which ADR processes they used ( e.g. ,
mediation) and in what kinds of cases ( e.g., employment). We asked about
respondents' experiences not just with mediation and arbitration but also with
other processes and techniques that we suspected were less widely used.

Nearly all our respondents reported some experience with ADR, with an
overwhelming 87% having used mediation and 80% having used arbitration at
least once in the past three years. More than 20% said they had used mediation-
arbitration ("med-arb"), mini-trials, fact-finding, and/or employee in-house
grievance procedures in the past three years. Finally, respondents from about 60
corporations (10%) had experience with ombudspersons and peer review. We
conclude that ADR has made substantial inroads into the fabric of American
Business, with counsel overwhelmingly preferring mediation (63%); arbitration
was a distant second (18%). Other forms of ADR have clearly not replaced tried-
and-true tactics completely, and in fact pale in importance beside mediation and
arbitration.

Our interest was not just in the breadth of ADR use but also in its depth of
penetration into the dispute resolution system of individual firms. Having tried a
process, does a firm resort to it again? Because frequent and one-time users are
represented equally in the data, our survey asked respondents additional questions
about the frequency of their use of mediation and arbitration in the last three
years. Only 19% of those who had used mediation reported using it frequently or
very frequently, almost 30% said they used it rarely, and the largest group (43%)
used it occasionally. The pattern is similar for arbitration; 21% reported frequent
or very frequent use, 33% used it rarely, and 42% used arbitration occasionally.
These numbers are significantly smaller than the responses to the question about
simple use, indicating that a much smaller group of firms have what could be
called extensive ADR experience. The reality of corporate ADR experience is one
of significant breadth but little depth.
We also wondered about the types of disputes for which ADR processes were
being used, specifically "right" and "interest" disputes. These terms are commonly
applied in some fields, such as employment, but have different meanings in other
areas. We define a rights dispute as a conflict that arises out of the administration
of an already existing agreement. An interest dispute is a conflict that arises during
the negotiation of a new agreement. In practical terms, interest disputes arise
between parties trying to forge a relationship, while rights disputes arise between
parties already in a relationship.

We found significantly different patterns in the forms of ADR used for right
disputes and interest disputes. As Table 1 shows, almost 92% of the respondents
have used mediation in rights disputes, but more than 60% have never used it for
interest disputes. Table 2 indicates a similar pattern for arbitration, with over 95%
of the respondents reporting some use of arbitration in rights disputes, while in
interest disputes nearly 64% have not used it at all. Therefore, wherever we
examine frequency data, we use only the findings concerning rights disputes .
In sum, nearly all corporations have experience with ADR, but a much smaller
number of companies use mediation and arbitration frequently, even in rights
disputes. Mediation and arbitration are used even less often in interest disputes.

We expected that those corporations that had tried mediation or arbitration would
be more likely to have also tried the other six ADR processes that we identified
(ombudspersons, fact-finding, peer review, mini-trials, med-arb, and in-house
grievance procedures), and the survey responses confirmed this. Companies that
use mediation or arbitration frequently are much more likely to have experimented
with less commonly used methods, such as ombudspersons or peer-based
processes, and on average had tried four of the eight processes. We speculate that
corporations first try mediation or arbitration; if those processes are of value to
them, they continue to use them but also experiment with other forms of ADR.
Situational Use of ADR
Our survey asked about circumstances in which ADR is appropriate, including
each corporation's general strategy when it is the initiating party and when it is the
defending party. We thought that a company might prefer to litigate when
initiating and negotiate when on the defensive, and that corporations could vary
their strategy depending on the situation. Company A may sue Company B, and
even though B may want to negotiate a resolution, it may be obligated to defend
itself in court. With those points in mind we asked questions relating to companies'
overall strategy toward conflict resolution (see Table 3).




We found that only 5% and 6% of corporations always choose to litigate when
they are the defending and initiating parties respectively. A larger group, but still a
small minority of firms, always choose an ADR strategy whether defending or
initiation. Most firms adopt a more conditional posture but in general are open to
ADR. A reasonably large proportion of the corporations have no policy on this
matter, and their comments indicate that they set strategy on a dispute-by-dispute
basis.

Before analyzing the data, we had believed that if a corporation was the initiating
party and at least initially in control, its decision to use or not use ADR might
better reflect corporate policy. Based on our data, it appears to make no difference.
Corporate policy seems to be largely independent of a company's status as the
defending or initiating party.

We also thought that the subject matter of a conflict might affect a corporation's
preference for ADR. On the one hand, we speculated that corporations might see it
as advantageous to litigate certain types of disputes that the courts or
administrative agencies are particularly well-positioned to resolve. This could
occur when corporations see litigation as more likely to produce a favorable
outcome. On the other hand, corporations might see the conditions surrounding
some areas of conflict as more favorable to negotiation. To ascertain whether these
differences affected a corporation's preference for ADR, we asked the respondents
whether they had used mediation or arbitration in 11 specific dispute situations
(Table 4).




As the data indicates, the proportion of firms that have used mediation and/or
arbitration to resolve different types of disputes varies widely. The raw rankings
from high to low are similar for mediation and arbitration, with
commercial/contract disputes and employment disputes at the top of both lists.
Financial disputes of all types, including corporate finance, are rarely submitted to
either from of ADR. The other types of disputes fall into a middle range. Again,
our initial hypotheses that mediation is a threshold ADR process seems to be
upheld. Mediation is used more extensively across the board. Likewise, ADR
appears to be a near-standard practice for some conflicts but rarely used for others.
Apparently corporations do not consider ADR appropriate or useful in all arenas
but rather use it more selectively. It may also be that ADR has grown easily in
certain areas of dispute handling and may yet be used more extensively in other
areas.
ADR Use by Industry
As we have shown, ADR use is not uniform. There are important variations
among corporations in their preferences for one dispute process over another and
in the kinds of cases for which they use ADR. ADR use also varies significantly
by industry, and we see at least two plausible reasons for this. First, within a
particular industry behavior patterns or norms tend to be uniform, and the use of
ADR may be one such norm. For example, negotiation may be the preferred
method of dispute resolution in one industry simply because it has always been
used. Second, industry variation in ADR use may be attributable to the fact that
conflicts in certain industries, such as construction, are more amenable to
resolution with ADR techniques then the conflicts in other industries.




Table 5 shows the proportion of corporations in each of the major industrial
groups that have had some experience with each of the eight ADR procedures.
These findings indicate that nearly all corporations have had some experience with
mediation and with arbitration. All of the firms in mining and construction
reported having used both, and even in the service sector, where the levels of
experience were the lowest overall, well over four-fifths of the firms had used
mediation in the past three years.

An examination of the less commonly used ADR techniques reveals more
significant variation by industry. For example, nearly half the financial firms had
an in-house grievance procedure, while only 24% of the nondurable
manufacturing firms did. For mini-trials and ombudspersons, firms in the
mining/construction sector had significantly more experience than firms in other
industries. Thirty-six percent of mining/construction firms had used mini-trials, as
compared with only 11% of service firms. More that 27% of the
mining/construction firms reported having an ombudsperson, while only 5% of the
service firms did. Mining/construction firms were less likely than other firms to
use fact-finding. Finally, the use of peer review and med-arb does not seem to vary
much across industries.

As discussed above, most firms across all industries list mediation as their
preferred ADR technique, although the mining/construction sector has a
substantial proportion (30%) preferring arbitration. (see Table 6.)
Industry differences may also account for differences in corporate policy. We
classified all respondents into two policy groups, one made up of companies that
tend always to litigate or to litigate first when they are the initiating party and the
other consisting of companies that always use ADR, or seek to, and litigate only as
a last resort. For this analysis we eliminated those companies with no stated ADR
policy.

Our findings revealed some industry differences. A raw ranking shows that the
mining/construction sector tends to use ADR; in this group, 70% of the
respondents reported that their firms use ADR most or all of the time to resolve
disputes. By stark contrast, 54% of the firms in the
transportation/communications/utilities sector report that they prefer to litigate,
making this the industry group most likely to do so.

Up to this point we have examined industry differences in the use of ADR, not
how often firms in these industries use the various processes. The figure for the
mining/construction sector stands out: 54% of the firms in this sector report using
mediation frequently or very frequently--more then twice the next-highest
percentage, for the service sector.

The results are similar on the use of arbitration, with the percentage for firms in
mining/construction higher than other industries; 60% of the firms in this sector
report that they use arbitration much less frequently, and in durable manufacturing
only 13% used it frequently or very frequently.

Why is mining/construction so different from the other industries? One can
speculate that mining and construction are most in need of ADR because delay
caused by a dispute can destroy a project or even a business. A construction
project cannot be held up while a dispute with a supplier is being resolved in the
courts, for example. This industry has had to develop and nurture alternative
dispute resolution procedures that allow work to continue while the dispute is
being resolved.
Finally, we examined the use of mediation and arbitration by industry for different
types of disputes. As shown in Tables 7 and 8, these results are very interesting.
As we observed earlier, nearly all the industries report heavy use of ADR for
employment disputes; 64% to 91% of firms have used mediation. Likewise, nearly
all the firms report using mediation in commercial and contract disputes. In the
second tier of disputes, however, for which ADR use is less universal, there is
significant variation by industry. Manufacturing firms use ADR to resolve
environmental and intellectual property disputes more than firms in any of the
other industries. Further, finance firms show much higher then average use of
mediation for disputes involving financial reorganization, consumer rights, and
corporate finance. While the result for consumer rights is easily explainable, since
ADR has long been established as the appropriate means for handling disputes
involving brokers and customers, it is not so straightforward to explain the higher
usage of mediation in financial reorganization or corporate finance. Below-
average use in some industries occurs simply because the concept of dispute is
irrelevant. For example, a very small number of firms in finance report using
mediation to resolve product liability cases (they have no products in a
conventional sense), and no mining or construction firms had used mediation to
resolve disputes involving corporate finance.
Summary
Nearly all US corporations have some experience with the basic ADR processes of
arbitration and mediation. As we look more carefully at the data, however, we
see that ADR is used to resolve specific types of disputes under specific
circumstances. A much smaller number of companies have extensive experiences
with ADR or have tried to use it as a general mechanism for dispute resolution.
Other Important Findings
The study's other sections delve into the reasons why some corporations use ADR
and why others don't, the economic and other factors that help shape ADR policy
and strategy of many corporations, and the future of ADR. The following are
excerpts from sections two to five of some of the important findings in the report.
Why Do Corporation Use ADR?
One of the more significant forces driving corporation toward ADR is the cost of
litigation and the length of time needed to reach a settlement. All else being equal,
ADR is widely considered cheaper and faster....

Cost reduction may be the most widely cited reason for choosing ADR, but
corporation report many reasons as well....We found that many of the answers
related to the parties' desire to control their own destinies--to have some control
over the path to resolution, even if (as in arbitration) they cannot control the
outcome....

The most often cited reason to use mediation (identified by more than 82% if the
respondents) was that it allows the parties to resolve the dispute themselves; both
sides must agree to a settlement. In stark contrast, both arbitration and the court
system lead to decisions the parties may not agree with.

Eighty-one percent of those surveyed said that mediation provided a more
satisfactory process than litigation, 67% said it provided more satisfactory
settlements, and 59% reported that it preserved good relationships. In sum, these
responses indicate that mediation provides not just an alternative means to
conventional dispute resolution but a superior process for reaching a resolution....
In general, the support for arbitration among corporations is not as strong as it is
for mediation. For example, just over 60% of respondents said they believed that
arbitration provided a more satisfactory process then litigation--significant, but not
nearly the overwhelming support we saw with mediation.....

The reasons corporations have moved toward ADR can be divided broadly into
economic and process-control reasons. Most of the participants in our study
believe that there are economic reasons to use ADR processes; compared with
conventional dispute resolution processes, they save their companies’ time and
money. But there is strong evidence that regaining control of the dispute resolution
process is an important motivation as well....
Corporate Policy and Strategy
The ADR policy adopted by a corporation appears to be systematically related to a
set of economic and market factors as well as conscious strategies adopted by the
corporation. Large corporations that have faced intense competitive pressures and
have engaged in downsizing and re-engineering appear more likely to have strong
pro-ADR policies. Also, corporations that have adopted cutting-edge management
strategies seem likelier to be pro-ADR. By contrast, smaller, more profitable
corporations... are more likely to favor litigation.

Barriers to the Use of ADR
When corporations use mediation frequently or very frequently, the dominant
reason they do not use it is because opposing parties won't agree to it; more then
93% of the respondents from these companies cited this reason. Respondents from
corporations that only occasionally or rarely use mediation gave a variety of
reasons for not using it....

The results for frequent versus infrequent users of arbitration are roughly
comparable; when corporations use arbitration frequently, the reason they don't
use it is because the opposing party is unwilling to do so. By contrast, corporations
that rarely use arbitration avoid it because they don't like the process and lack
confidence in the arbitrator.

The Future of ADR
Is it reasonable to expect that the use of ADR by US corporations will continue to
grow in the future? We asked the respondents in our survey a series of questions
designed to determine their view on this issue....In general, a large majority of the
respondents in our survey believe that they are "likely" or "very likely" to use
mediation in the future--38% and 46%, respectively. They were more cautious
about the use of arbitration. Only 24% said they were very likely to use it in the
future, while 47% said they were likely to do so. More then 29% said they were
unlikely or very unlikely to use arbitration in the future, whereas only 16%
answered similarly in the case of mediation. Nevertheless, if these projections are
accurate, the use of ADR by US corporations will grow significantly.

David Lipsky is a professor at Cornell University and the director of the Cornell/PERC Institute
on Conflict Resolution. His research and teaching primarily focus on negotiation, conflict
resolution, and collective bargaining.

Ronald Seeber is a professor at Cornell University, and the executive director at the
Cornell/PERC Institute on Conflict Resolution. His research has covered a wide range of topics in
the field of labor-management relations.

Reprinted with permission of the American Arbitration Association and
Cornell/PERC Institute on Conflict Resolution

				
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